Apex court order on guarantor

LEGAL DIGEST

The Supreme Court has ruled in the Pawan Kumar vs Pradeshiya Industrial & Investment Corporation of UP Ltd case that action against a guarantor cannot be taken until the property of the debtor is sold off under the state debt law.

In this case, a director of a company stood guarantee for a loan taken by his firm from the UP Corporation. Since the firm did not return the loan, the corporation issued a recovery notice against the director under the UP Public Moneys (Recovery of Dues) Act.

He challenged it in the Allahabad High Court, but his petition was dismissed. In his appeal, the Supreme Court quashed the recovery notice.

The apex court pointed out Section 3 of the state Act prescribed that in mortgages or other securities, the property of the defaulter should be sold first for recovery of the sum due and other proceedings could be taken only after that.

Therefore, the state corporation must sell the property mortgaged by the company before proceeding against him.

In this case, there was a settlement between the company and the corporation. So the corporation could not proceed against the director who stood guarantee.

Moreover, any recovery proceeding by a state finance corporation must be taken under the Recovery of Debts Due to Banks & Financial Institutions Act 1993, and not under the state law. The apex court had laid down this rule last year in the Unique Butyle Tube Industries case.

Rehear Reliance case, SC tells Cegat

The Supreme Court has directed Cegat to rehear a case in which Reliance Industries was sent a notice by the excise department for short-payment of duty on the production of polyester filament yarn.

The allegations were confirmed by the collector and a penalty was imposed on the company as well as confiscation of land and machinery. But Cegat quashed the collector's order.

The commissioner appealed to the apex court. "We find that Cegat has not approached the controversy in the proper perspective. Various aspects, which have been highlighted and specifically noted by the collector, were not considered by Cegat. Its conclusions that there was no allegation of fraud, misdeclaration or intention to evade duty, prima facie, do not appear to be correct," the order said.

Therefore, a fresh hearing was required. Cegat would then consider aspects like the presence of the articles in the finishing room, effect of mention in the log sheets and effect of non-maintenance of required records and allegations contained in the showcause notice must be considered "in the proper perspective," the Supreme Court emphasised.

Goods exported under Customs bond

The Supreme Court, in the Gaurav Distributors Ltd vs Commissioner of Customs case, dismissed the company's appeal challenging the Customs duty on goods reimported to this country after it was exported by another Indian company.

SKF Bearing India Ltd had exported ball bearings under bonds. These goods were purchased by Gaurav Distributors and reimported to India. The department imposed duty under Section 20 of the Customs Act.

This was upheld by the Customs Excise & Gold (Control) Appellate Tribunal. The company appealed to the Supreme Court, arguing that the phrase "goods exported in bond" in Section 20 must be restricted to mean goods exported under Customs bond, not excise bond. This made a difference in the rate of duty.

The Supreme Court rejected the contention. It said goods could be exported both under a Customs bond as well as excise bond. The law-makers used the words "exported in bond" without qualification.

"This indicates that the intention was to include goods exported under a Customs bond or an excise bond. If the legislature wanted to restrict these words only to goods exported under Customs bond, they would have had to say so specifically. In the absence of any restrictive words, the expression must be given its full meaning and must include goods exported either under a Customs bond or an excise bond," the judgment explained.

Nirma's appeal against HLL rejected

The Supreme Court has dismissed the appeal of Nirma Ltd against the decision of the Monopolies and Restrictive Trade Practices Commission alleging that some of the advertisements of Hindustan Lever Ltd "disparaged" its detergent.

Nirma argued that a woman was shown using a pouch containing yellow powder like that of Nirma. She is disappointed apparently because there is no foam and does not clean well.

Her hands are damaged. Then she goes in for one of the Hindustan Lever products. This was disparagement of rival products and an unfair trade practice. The apex court Bench headed by Justice SN Variava rejected the appeal, observing that Nirma was "oversensitive" in this matter.

"Simply because both the factories are in the same premises that does not lead to the inference that both the factories are one and the same. In the present case, it is apparent that there is no commonality of purpose, both the factories have separate entrance, the end product is different, they are separately registered with the excise department, the staff is separate, the management is separate. Both are separate establishments run by separate managers though at the apex level it is maintained by the company. Simply because both the factories may have common boundaries that will not make it one factory," the court said.